July 2011

The 2011 breeding season in North America has officially drawn to a close. The BloodHorse.com posted an article on Tuesday with commentary from several major Thoroughbred stud farms about how they fared during the 2011 breeding season. Some stallion farms did better in 2011 than in 2010 (primarily those where proven sires stood in 2011). Overall, stallion farms found that breeders were strapped for cash in 2011, reducing the overall number of mares kept for breeding and the budgets for stud fees. Breeders were also more selective in 2011. They chose proven sires over young stallions, and fled with their mares when veteran stallions’ progeny did not perform as expected.

Many stallion farms ran promotions in 2011 to attract mare owners. Promotions were especially popular for new, unproven sires. Promotions ranged in type and complexity, for example:

Reduced stud fees across the board

Free breedings to freshman sires

Multiple mare discounts

Special individualized packages for long-time customers; and

Lifetime breeding rights programs

Lifetime Breeding Rights. Spendthrift Farm near Lexington is one example of a stallion farm that offered lifetime breeding rights in its 2011 breeding packages. Spendthrift calls their lifetime breeding rights package the “Share the Upside Program.” These packages are designed to promote new studs and provide them with larger books of mares early in their careers.

How the Spendthrift program works: The breeder puts down a deposit on a young stud, and agrees to breed a mare to the stallion during his first and second years at stud. The mare owner pays a stud fee when each resulting foal stands and nurses. After the two foals are born and the mare owner pays both stud fees, the stud farm grants the breeder a lifetime breeding right in the stallion. Usually, the number of contracts is limited so that the stallion owner can maintain a 50% interest in each young stallion.

Tips for Stallion Farms: Make sure the terms of all special stallion promotions are in writing and signed by the breeders. If the stud fees are not due until the foal stands and nurses, be sure to retain a security interest (in writing) in the mare, the foal, and/or the breeder’s certificate. Be mindful of the fact that granting lifetime breeding rights may hinder your ability to later sell the stallion as a whole. The issue of what happens if you want to sell the stallion as a whole needs to be addressed in a contract between you and those who purchase lifetime breeding rights.

How did your 2011 breeding season go? Please post comments and share what worked for you, and what didn’t.

September will bring the opening of Texas bird hunting season and (hopefully) the onset of cooler weather. This means that many Texans may soon be emerging from air-conditioned vehicles and buildings to enjoy outdoor activities. Texas land owners who allow others to use their land for trail riding, hunting, or other recreational uses should be aware of when Texas law says they may be held liable for injuries arising from the use of their property.

The applicable legal standard is found in the Texas Recreational Use Statute (RUS) (Chapter 75 of the Texas Civil Practice & Remedies Code). A link to the full language of the statute can be found here.

The RUS was originally enacted in 1965 to limit the liability of Texas land owners who allow others to use their land for hunting, fishing or camping. The RUS has been amended many times over the years to expand the immunity and to broaden the scope of the law. The current law is summarized below:

Limits liability of land owners, lessees, and occupants of agricultural land and other real property. All references to “land owners” below includes also lessees and other occupants;

Provides that if land owners give permission to others to use the land for recreational purposes, the land owner is not liable to the invitee unless the land owner was grossly negligent, acted with malicious intent, or acted in bad faith;

Provides that a land owner is not liable for any injury to a trespasser except for willful or wanton acts or gross negligence by the land owner;

Covers any activity associated with enjoying nature or the outdoors;

Covers a land owner who meets one of the following tests: (1) does not charge for entry to the premises; (2) charges for entry to the premises, but the total charges collected in the previous calendar year were not more than 20 times the total amount of ad valorem taxes imposed on the premises; or (3) has premises liability insurance coverage in effect that meets the statutory requirements($1 million for each occurrence of bodily injury or death and $100,000 for each occurrence of property damage or destruction);

The following damages caps apply to claims against owners of agricultural land if they are covered by premises liability insurance that meets the statutory requirements:1) $500,000 in damages per person; 2) $1 million for each occurrence of bodily injury or death; and 3) $100,000 for each occurrence of damage to or destruction of property.

Tips to avoid liability: Post “No Trespassing” signs in conspicuous areas around your property. Do not charge invitees for using the land. Get premises liability insurance that meets the statute’s guidelines if you believe you will be allowing visitors to use your land for recreational purposes. Lastly, it never hurts to have invitees sign a liability release.

All 50 states have some form of Recreational Use Statute, and the law varies greatly from state to state. To locate recreational use statutes in other states, see this site. For more information on the Texas RUS, see this article from the Texas A&M Real Estate Center.

As discussed in a prior post, reining has hit the international scene like wildfire. Not unlike the sports of Thoroughbred racing and eventing, high-level reining events are now being held in a number countries outside North America that have differing customs regarding acceptable medications and dosage levels for equine athletes during performances.

The National Reining Horse Association (“NRHA”) issued a press release on Sunday announcing the vote of their Board of Directors to implement an “Animal Welfare and Medications” rule. This vote occurred after many discussions with NRHA membership both in the United States and abroad.

This move is widely viewed as being in the best interest of the reining horse and the Association as a whole. The additional benefits are that it accommodates the internationalization of the sport of reining, and it will provide more clearly-understood and uniform medication rules applicable in all nations participating in NRHA events.

The NRHA will soon begin a multi-phase testing and research program to collect data specific to reining and help the Association implement a program that is suitable for the reining industry. Horses at NRHA-sanctioned events may be tested at random to determine which medications reining horses are currently competing on, and the amount of medications that are typically being used. The tests will include physical exams and drug testing by licensed veterinarians or technicians.

The new rule includes a description of substances that horses are not allowed to compete on, as well as the acceptable limits for approved medications. Christa Morris, NRHA Sr. Director of Marketing, says of the new rules:

The prohibited substances include drugs that are considered to be in the category of a stimulant, depressant, tranquilizer, local anesthetic, psychotropic substance, or other drug which might affect the performance of a horse. Providing a complete list of forbidden substances is problematic, because new drugs frequently come onto the market. For that reason, this definition in the rule will act as a guideline for members. We will provide an example list of prohibited substances, but it is not intended to be an exhaustive list.”

The full rule has not been released to the public to-date, but members can access it on the NRHA website by logging in.

The new rule will be included in the 2012 NRHA Handbook. According to Morris, a “medications handbook” providing additional guidance to members to help them navigate the new rules will be provided to members along with the 2012 NRHA Handbook.

NRHA exhibitors should remember to read labels on herbal and other over-the-counter supplements, to make sure they don’t contain any of the substances prohibited by the new rules.

When you find yourself in need of a lawyer, it’s always best to either call on an attorney whom you already know, or to call someone to whom you were referred by a person you trust.

Because equine law is such a specialized niche practice, you might not already know an equine practitioner and you might not be able to get a referral from a trusted source. In these cases, your only option might be to “cold-call” an equine attorney whom you found through a Google search or on a social media outlet.

Once you’ve found the name of an equine attorney you’d like to call about your legal matter, here are some guidelines to consider before you make the first contact:

1) Prepare for the Call. If you have been served with papers, look at the papers carefully and determine which court the matter was filed in, whether it is civil or criminal, and what the court is asking you to do and when. If you have received a demand letter, figure out what exactly the other party is demanding of you and by when. Have the papers in front of you when you call the lawyer, and have a plan lined up on how you can fax or email the papers to the lawyer immediately if necessary.

2) Think About What You Want From the Lawyer Before the Call. If you are calling a lawyer to talk about suing someone, think about how to explain the problem and what you want in four sentences or less. The lawyer will follow up with questions pertinent to the legal issues raised by your short summary of the issue.

A good example of a summary to start a conversation with a lawyer: “I think I want to sue the guy who sold me my horse. Two days after I got him home, he was crippled. My vet says the problem existed before I bought him and that he will never be sound again.” Let the lawyer take it from there. Try to refrain from going on tangents when you are answering the lawyer’s questions.

Before the initial call, think about whether you are willing to spend money on an attorney to pursue your claims. If the answer is “no”, your first question to the lawyer should be whether you can schedule a paid consult to help you investigate your claims, or whether the particular lawyer takes contingency cases.

3) Be Prepared to Listen. It is not the lawyer’s job to tell you what you want to hear. If you disagree with what the lawyer is telling you about your case, refrain from arguing with the lawyer (doing so will make him not want to take you on as a client). It is best to listen and consider what the lawyer is telling you, and ask follow up questions if necessary. You should call another attorney for a second opinion if you have doubts about what a lawyer tells you about your case. Be mindful of the fact that if you insist on a lawyer who will only tell you want you want to hear, you might find yourself being represented by someone who is (1) a pushover, (2) dishonest, or (3) desperate for work. None of these scenarios will be good for you in the long run.

4) Think About Timing. You should not wait until 5 days before your trial or appearance date before calling the lawyer. If you need a lawyer to draft an agreement or set up a business entity for you, you should call a lawyer at least two weeks before the work needs to be completed. Sometimes a task that you might think will only take a couple of days for a lawyer will take more time, because the lawyer has work that has to be completed for other clients who hired the lawyer before your matter came in.

If you are thinking about filing a lawsuit in Texas on a horse case, or if you think someone is planning on suing you in Texas, the following bullet summary contains some facts to consider about the new “loser pays” law that recently passed the Texas Legislature.

These new rules are widely viewed as being friendly to defendants in civil cases. However, it remains to be seen how these new procedural rules will, in practice, affect plaintiffs’ ability to recover monetary damages in Texas.

As I discussed in a previous post, civil lawsuits are first and foremost about money. Potential plaintiffs should definitely take these new rules and their potential financial impact into consideration before deciding to file suit on a horse case in Texas.

Basic Info. The “loser pays” law is contained in HB 274. The full text of the bill can be found here. The law was signed by Governor Perry on May 30, 2011, and it takes effect on September 1, 2011. It will only apply to civil lawsuits filed in Texas on or after September 1, 2011. The passage of the bill comes after months of intense legislative debate and publicity. The bill originally proposed in the House contained a number of “loser pays” provisions, but the version that was ultimately adopted contains only one true fee-shifting provision and instead implements several other procedural reforms.

New Motion to Dismiss Procedure and Related Fee-Shift. The bill creates a “motion to dismiss” practice that was not previously available in Texas. What this means: A defendant can file a motion to dismiss a cause of action that “has no basis in law or fact” without submitting or offering any evidence along with the motion. The prevailing party on the motion to dismiss (which includes a plaintiff who successfully avoids dismissal) will be awarded its attorneys’ fees and costs.

Expansion of Fees/Costs Offset if Settlement Offer Rejected. Texas already has a “settlement offer” statute that permits a party to make a written settlement offer that, if rejected, entitles the offering party to offset its attorneys’ fees and certain litigation costs against the judgment if the final judgment rendered is significantly less favorable to the party that rejected the settlement offer. Before HB 274, defense fees and costs that could offset a plaintiff’s judgment were capped at 50 percent of economic damages and 100 percent of non-economic damages and exemplary damages. HB 274 expands the amount of recoverable attorneys’ fees and costs to the total amount that the plaintiff recovers. This means that plaintiffs now risk having their entire judgment offset if they reject a settlement offer made under the statute.

There are two other changes to Texas civil trial procedure found in HB 274: one permitting more interlocutory appeals of controlling questions of law, and the other having to do with a defendant’s ability to designate a responsible third party after the applicable statute of limitations has passed.

Owners of world-class Thoroughbreds and their trainers now have one more rule to comply with and will face liability for non-compliance. The Breeder’s Cup has announced that the administration of Lasix will be prohibited for 2 year-olds at Breeder’s Cup races in 2012, and all race-day drugs will be banned for all Breeder’s Cup races in 2013.

Breeder’s Cup has not yet named the host site for the 2012 Breeder’s Cup, but the organization is considering Belmont Park, Churchill Downs, and Santa Anita Park.

Lasix is a drug used to treat bleeding in the lungs. Some people believe the drug enhances performance because studies have shown that horses who are administered Lasix on race day outperform horses who do not receive the drug.

More than 90% of all North American race horses receive a race-day injection of Lasix, and it is exceedingly rare here to see a horse taken off the drug while racing. However, no other racing jurisdiction outside of North America allows the use of race day drugs.

Most horses who come from overseas jurisdictions to run the Breeder’s Cup are administered Lasix on race day, which is believed to “level the playing field” in races where North American horses are also entered.

Some believe that the move by Breeder’s Cup will spur other racing jurisdictions to implement similar race day drug bans. U.S. Rep. Tom Udall of New Mexico issued a statement praising the move.

One thing is clear…unless other North American tracks and events also ban Lasix on race day for the 2012 season, the new Breeder’s Cup Lasix ban might present complications for handicappers who will have to take into consideration the impact of taking a horse off Lasix after a horse has been racing and training on the drug.

Nearly half of the United States is battling extreme temperatures. Surprisingly, the occurrence of a simple heat wave can expose boarding facilities and trainers to complaints and even lawsuits should a customer’s horse become ill due to extreme heat.

The Horse.com has published some good advice from veterinarians on caring for horses in extreme heat. The full articles can be found here and here, and a bullet point summary is below.

Those of you in Texas and elsewhere in the South already know this information. I am reposting it here because if a complaint or allegation ever arises over a horse that got sick due to heat at your barn, you should be able to ward off any potential liability if you have followed the guidelines generally accepted by veterinarians.

Take measures to repel insects (fly sheets, fly spray, stall fans, fly strips, etc.) or encourage customers to do so if this is not a service you provide

If possible, keep horses in the pasture / turn out area vs. the barn during the hottest part of the day as long as there is access to shade and plenty of fresh water in the pasture / turn out

To avoid heat stress in horses being worked vigorously in hot weather, walk the horse periodically for 5 to 10 minutes during workouts

If you work a horse in the heat and think he might be susceptible to heat stress, cool him down gradually by hosing him down with cool water and scraping it away continuously until his chest feels cool to the touch and/or his temperature drops below 103.5 degrees

Horse operations that employ workers should also check out Russell Cawyer’s post on recommendations for employers who have employees working in extreme heat conditions.

Anybody can file a lawsuit; the question is whether you can win the lawsuit and collect the judgment. I am writing this post for the benefit of all potential plaintiffs in horse cases who would like some guidance to determine whether a horse case is worth pursuing. To be worth pursuing, a horse case must satisfy five elements: (1) Money, (2) Damages, (3) Liability, (4) Causation, and (5) Credibility.

1) Money. Our civil justice system is not about revenge or even justice…it’s about money, because money is virtually the only way a civil court can compensate a plaintiff. Potential plaintiffs need to consider how much money it would take to pursue the case versus the potential amount they can actually recover from the defendant. As a general rule of thumb, the amount in controversy needs to be at least $25,000 to make it worth engaging counsel to prosecute a civil case. In many cases, plaintiffs will not be awarded their attorneys’ fees even if they win the case. The potential defendant needs to either have an insurance policy that would apply to the potential claims or otherwise have assets that are not exempt from attachment on a judgment.

2) Damages. In a good horse case, a plaintiff can prove the defendant damaged them and can put a dollar amount on the damages. If the plaintiff cannot quantify their damages, the lawyer usually cannot either. Expert witnesses can sometimes be hired (usually at the client’s expense) to figure out what the damages are. But sometimes, after spending money on an expert, clients don’t like the answer the expert comes up with. Therefore, the best cases are those where the amount of damages is fairly simple to quantify.

3) Liability. A good horse case is one where it can be proven that the defendant is liable for the damages that the plaintiff incurred. For a defendant to be liable, a plaintiff needs to be able to prove that the defendant either breached the terms of an agreement with the plaintiff, or was liable in tort to plaintiff (common torts in horse cases include negligence, fraud, and breach of fiduciary duty).

4) Causation. The plaintiff must be able to prove that the defendant’s actionable conduct caused the money damages identified by the plaintiff. The plaintiff must be able to prove that the defendants’ actions, and not some other person or event, caused the damages complained of. In the best cases, the plaintiff can pinpoint the person or entity that damaged them, and can explain what the defendant did or failed to do that ultimately caused the damages.

5) Credibility. The credibility of a plaintiff is often the most important element of a horse case. Does your story pass the “smell test”? Put your emotions aside for a moment and ask yourself whether your demands are reasonable given the applicable customs and conventions as they currently exist in the horse industry. I recommend talking to others who have played the defendant’s role (i.e. horse trader, veterinarian, trainer) about your case. If those who have been in the defendant’s shoes before agree with your position, chances are your story will be credible to a jury.

There is a sense among equine tax professionals and tax lawyers that as of recently, IRS has begun to audit more horse businesses than ever before, and that the IRS is allowing fewer deductions and losses for taxpayers who run horse businesses.

If your horse business is audited, your first call should be to your accountant, who can advise you how you should handle yourself and your paperwork during the audit. However, once your audit begins, there is often little your accountant or lawyer can do to influence the auditor’s decision about what is contained in your business records. Thus, it is highly important that you take steps in advance (beginning with the first day you start running your horse business) to stave off an audit, or at least end up with a “no change” audit (i.e. a finding by the auditor that you reported everything correctly).

Jim Hodges is a certified public accountant (CPA) in Dallas, Texas who has over 30 years of experience preparing returns for horse businesses and horse owners, and has assisted many horse owners with audits. Here are Jim’s top 5 tax tips for horse businesses:

1) Draft a business plan that describes how you plan on making a profit in your horse business.

2) Keep very good business records, including records of the time you spend on your horse activity.

3) Hire a good bookkeeper to keep your books and records for your horse business.

4) Do not commingle personal funds and funds used for the horse business. Use separate bank accounts and credit cards.

5) If you have large losses from your horse business one year, it is tempting to deduct only part of the losses so it is not as much of a “red flag” to the IRS. DO NOT DO THIS. For all expenses or deductions for your horse business, you should take an “all or nothing” approach.

**I (Alison) put together a sample business plan for horse businesses (for a fictional business), and it can be downloaded here. For more information on equine business plans, see this post.**

The sense I get from talking to many with their “ears to the tracks” on audits is that if you make a lot of money in your “day job”, you are likely to get audited, even if you are doing everything correctly. Similarly, if you write off large losses, you are likely to be audited, even if you did not do anything inappropriate. But as long as you are legitimately running your horse operation “like a business”, you are likely to survive an audit.

If someone owes you money for board, training, or veterinary services, you may now be able to call your district or county attorney and have the debtor criminally charged with “theft of service”, even if the debtor has made partial payments to you. Note: this probably won’t work if you agreed to accept partial payments or agreed to a payment plan.

On May 27, 2011, Governor Perry signed S.B. No. 1024 into law. This bill revises Section 31.04 of the Texas Penal Code, eliminating a loophole that previously existed for a criminal theft of service charge. Under prior law, a party obtaining services from another under a promise to pay could avoid a criminal charge of theft of service so long as the party was making minimal payments.

Beginning on September 1, 2011, when the new law takes effect, a person can be charged with theft of service if full payment is not received by the service provider after the debtor receives notice demanding payment.

This new law also applies to wages a horse operation might pay to its employees. A theft of wages can now be found even if partial wages are paid. See this post by Russell Cawyer for more information on how this law affects employers for failure to pay wages in full.

Things to know about “theft of service” charges in Texas:

You can be arrested for theft of service and you can go to jail if you are convicted.

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About Alison

Alison is recognized nationally as a top expert in the area of equine law. Alison’s equine industry focus involves providing professional assistance and legal representation to individuals, business entities, associations, government agencies and legislative bodies who are involved in the horse industry.